Market Review

• Asian key regional indices ended in the negative zone as development on Trump-Comey clash has turned the mood negatively on the stock markets following a softer confidence towards Trump. The Nikkei 225 declined 0.53%, while Hang Seng Index and Shanghai Composite Index fell 0.17% and 0.26% respectively.

• Sentiments on the local front were affected as well; the FBM KLCI declined soon after the key index traded near the resistance along 1,780 and ended at 1,775.65 pts (-0.15%). Market breadth continued to stay negative with 473 decliners vs. 417 advancers. Meanwhile, overall market volumes stood at 3.45b shares, valued at RM2.88b. Also, market participation on the foreign funds recorded a net outflow of RM51.1m, first net outflow after 16 consecutive trading days of net buying in Malaysia.

• US stock markets suffered the biggest one-day decline since September 2016 after Trump's political turmoil and investors worried that Trump's economic agenda might be delayed. The Dow and S&P500 tumbled 1.78% and 1.82%, while Nasdaq dived 2.57%.

Technical View

Another rejection below 1,780 as selling pressure intensified

• The FBM KLCI revisited the 1,780 level, but still unable to secure the territory above the resistance level. The MACD Histogram extended another red bar, while the MACD Line is flattish. Also, it has formed a bearish divergence signal on the FBM KLCI as shown in the chart in FIG2. Should there be any violation below the 1,770 level, next support will be seen around 1,740-1,750. Resistance will be envisaged around 1,780-1,790.

Market Outlook

• In the US, with the declining confidence on Trump's economic policies and the potential delayed of his plans, we expect to see a softer market moving forward. Hence, the Dow may revisit the support of 20,500, while the S&P500 may trend lower towards 2,330.

• Meanwhile, share prices on Bursa Malaysia could be affected by the negative performance on the overnight Wall Street. The FBM KLCI is likely to violate below 1,770, while next support will be pegged around 1,740- 1,750 levels. On the broader market, the FBM Small Cap has flashed a bearish divergence signal, suggesting traders to lookout for opportunities to take profit.

• Closed position: In anticipation of early signals of divergence in our technical indicators, we had squared off the remaining stocks recommended in April i.e. PTRANS (9.8% return), WZSATU (4.7% loss) and D&O (2.3% loss) yesterday. We keep our stocks introduced in May for now

Source: Hong Leong Investment Bank Research - 18 May 2017